The NZ$/US$ was propelled above 0.7600 overnight by an improvement in global risk sentiment, spurred by better US data and high hopes for today’s EU finance ministers meeting.

The NZ$/US$ was propelled above 0.7600 overnight by an improvement in global risk sentiment, spurred by better US data and high hopes for today’s EU finance ministers meeting.

By Mike Burrrowes

NZD

Statistics NZ updated its new monthly National Employment Indicator yesterday. For the month of September it was still positive on the jobs market. While September’s result was down a seasonally adjusted 0.1%, this needs to be viewed in the context of a 0.7% gain in August. This left the month to month trend still creeping higher, with September’s actual level up 1.2% on a year ago. With this sort of momentum it would be unusual (technically difficult) for Q4 employment to go backwards compared to Q3. This is a positive for the Q4 QES and HLFS (due 7 and 9 February respectively).

The NZD made steady gains against the EUR, rising from 0.5660 to 0.5720 currently. NZD/GBP spent the evening oscillating around 0.4880, as the UK Pre Budget Report helped boost the GBP (see Majors section). NZD/AUD hovered around 0.7600 for the evening.

Looking to the day ahead, October building consents will look okay following what seemed a largely technical correction in September, following big bounces over July/August. This afternoons credit aggregates will surely be another mixed and generally tepid bunch. Initial support on NZD/USD is eyed at 0.7570 and resistance at 0.7650.

Majors

Risk sentiment rebounded further overnight as the market remains hopeful ahead of the EU finance ministers meeting and as US data beat expectations. The improved sentiment saw “safe haven” demand for the USD and JPY wane. The AUD and NZD performed strongly against the USD.

Global equity markets continued to climb higher overnight, with the S&P500 index and Euro Stoxx 50 index posting modest gains of 0.2% and 0.5% respectively. The VIX index (proxy for risk aversion) eased to 31.0, from 32.1.

Reduced “safe haven” demand saw the USD index fall 0.3% to 79.00 overnight. Further supporting the good mood was better-than-expected US consumer confidence data for November (56.0 vs. 44.0 expected). With the Fed pledging to keep rate at zero until mid-2013 and potential for further QE, expect better US data to boost risk sentiment and lead to selling of the USD. The USD/JPY gradually fell from above 78.00 to 77.80 currently.

Trading in EUR/USD has remained extremely volatile overnight and is only marginally higher at 1.3320. While Italy was forced to pay a record 7.89% for 3-year debt and 7.56% for 10-year debt at its auction, it was seen as positive because they managed to issue a large amount. In late October Italy issued 3 and 10-year debt at 4.93% and 6.06% respectively.  

The rise in EUR/USD above 1.3420 was short-lived after the ECB failed for the first time since May to fully offset €203.5b in Eurozone government bond purchases. This amounts to €9b of QE. Interestingly, a Reuters poll showed 40% of economists expect the ECB to step up bond-buying by printing money within six months.

Watch out for comments from the Eurogroup ministers meeting taking place this morning NZT. The Ministers have confirmed Greece will receive its December aid payment. Expect some discussion on disbursements for Ireland and Portugal, alongside EFSF guidelines for leverage, bank stress tests, and term funding. Italy will present its reform and austerity program.

The GBP made decent gains against the USD overnight, rising almost 1 cent to around 1.5600. Markets appeared to like UK Chancellor Osborne’s Pre Budget Report. He delivered a budget statement that was reasonably credible on growth, but also managed to drive home the message that there is no alternative to plan A of cutting the deficit. While that means low growth for 2012 and possibly 2013, it is looking a lot worse in Europe.

Looking to the night ahead, expect the focus to remain on what EU leaders plan to do about the deteriorating European debt crisis.  Data wise, we have German retail sales, German and Eurozone unemployment data and Eurozone CPI. In the US, the ADP employment data will be closely watched for guidance on Friday’s important non-farm payrolls. The release of the Fed’s Beige Book will give markets some further insight on the state of the US economy. 

Mike Burrowes is part of the BNZ research team. 

All its research is available here.

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